Understanding how an IRS audit works can alleviate much of the fear and uncertainty surrounding this process. An audit is just an examination of financial information to verify its accuracy. Here, we’ll look at the different types of audits and offer tips on how to prepare and respond to each stage of the audit process.
Types of IRS Audits
There are three main types of IRS audits: Mail audits, Office audits, and Field audits.
Mail Audit
A mail audit, or correspondence audit, is the most common and simplest type of audit. The IRS sends a notice requesting additional information to verify specific items on your tax return. The information generally requested includes bills, receipts, or other substantiation to verify the accuracy of your return. If you receive such a letter, you need to mail back the requested information to the IRS.
We, at Creative Tax Solutions, recommend organizing and copying all the requested documents before sending them back.
Office Audit
An Office audit is a face-to-face audit conducted at a local IRS office. The IRS will send a letter specifying the date, time, and location of the audit, along with a list of the items under review. You, or your authorized representative, will need to bring the requested documents to the IRS office.
It’s strongly suggested that you seek professional help, like ours at Creative Tax Solutions, to ensure that you’re adequately prepared for this type of audit.
Field Audit
A Field audit is the most comprehensive type of audit where an IRS agent comes to visit your home, place of business, or accountant’s office. Before the field audit, the IRS will send a detailed letter notifying you of the audit, who will be conducting it, and a list of requested documents.
Given the extensive nature of a field audit, professional representation can be crucial to protect your rights and interests.
Audit Process
No matter the type of audit, all audits follow a similar process in four stages:
- Notification: The IRS notifies you of the audit through the mail. This letter will identify which taxes and tax periods are under audit, and which documents are requested.
- Review and Preparation: Review the tax returns in question and gather the requested documents. This is also the time to consult with a tax professional to help you understand and navigate the process.
- Meeting/Collaboration: Depending on your type of audit, you or your representative will meet with the IRS agent for a discussion, or you will send your documents by mail.
- Completion: At the end of the audit, the IRS agent will explain the problems they found (if any) and how they impact your tax return. If you don’t agree with the findings, you have the right to appeal the decision within 30 days.
Being organized, having all the necessary paperwork, and starting the preparation as soon as you get the audit notice can make this process more manageable. Here, at Creative Tax Solutions, we know that a tax audit can be intimidating. But with our help, you’ll be better prepared to handle any type of IRS audit confidently. When it comes to answering “How does an IRS audit work?” trust in the experts to guide you through, one step at a time.
